Five Ways to Make an Effective Personal Budget

How To Make A Simple Personal Budget

If you are working
towards gaining more control over your expenditure and planning your financial
goals, you need an effective personal budget. A budget is a summary of expected
income and expenses in a given period. It’s a planning tool that allows you to
plan on how to spend and save your earnings and keep track of your spending
patterns.

Though budgeting may not sound like a very exciting activity it is of great significance in keeping your financial house in order. Here’s how to make a simple budget;

How
to Make an Effective Personal Budget in 7 Simple Steps

Know How Much Money You Make

Making an effective
personal budget begins with knowing how much income is at hand and available
for expenses. If your income is from regular employment where taxes and social
welfare deductions are automatically made then use the net income as your
available income. Be sure to record other incomes outside your employment
income such as business income.

Track Your Expenses

List down all the
expenses you plan to incur during the budget period. This should include
essentially everything you spend your income on- rent, loan payments,
insurance, groceries, savings.

Categorize Your Expenses

Break down your listed
expenses into either fixed or variable. Fixed expenses remain relatively
constant each month and are generally a required part of your way of living.
These include expenses such as rent, insurance payments. Variable expenses vary
from month to month, such as expenditure on groceries, entertainment, to name a
few. This category will be important when making adjustments to come up with an
effective personal budget.

Sum Up Your Monthly Income And
Monthly Expenses

Add up all your income
and expenses and get the difference. If your income surpasses your expenses,
you are off to a good start. You can use the extra income in other areas of
your budget such as savings or clearing more loans.

If your expenses are more than your income,
then you need to make adjustments in your budget.

Make Adjustments In Your Expenses

When accurately
identified expenses and income in an effective personal budget should be equal.
This means that the all your income has been accounted for and budgeted for a
specific expenditure or savings. If the situation in your budget is such that
expenses are higher than the income, you should cut on the expenditure to bring
them to an equal balance with your income. This should be done by cutting down
on the variable expenses. Since these expenses are in most cases non-essential,
it should be easy to cut on a few areas to bring your expenses closer to your
income.

Plan For Savings

An effective personal
budget means takes care of your future financial welfare by giving great
importance to your savings. The proper policy requires you to save 10%-15% of
your income. Plan for your savings and avoid saving the residue after spending.
Remember to set aside some funds for emergency expenses such as medical
expenses. If possible have some funds that can sustain you for at least three
months without an income set aside as an emergency fund.

Review Your Budget Regularly

It’s important to review
your budget regularly to make sure you stay on track in your planning. After
the first month, compare your actual expenses against what you had laid out in
your budget. This will help you identify areas where you stayed on budget and
those that you need to improve on. You can divide your budget into weekly
budgets for easier tracking and monitoring.

Conclusion

Using a budget may not
be a fancy thing but it’s a smart way to design your financial life. Remember
an effective personal budget must have an outline of your income, expenses and
a savings plan. Be realistic when preparing your budget. Use actual figures as
opposed to estimates as this will give you a more practical budget.

With proper budgeting
you are sure to have a today free of debts and financial constraints and a
secure planned future.

Ejidiah is a highly spirited and dynamic individual. She delights in reading and writing on Christianity and business at any time. When not in the office she is writing something inspirational.

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